Timothy W. Cameron, Managing Director and Head of SIFMA’s Asset Management Group (“AMG”), published a blog post disputing the assertion by the Financial Services Oversight Council (better known as the FSOC) that asset managers may pose systemic risk and the larger asset management firms might be designated as subject to the additional regulatory burdens applicable to systemically significant firms.
Mr. Cameron identified key ways in which asset managers differ from other financial institutions. First, he stated that asset managers invest money on behalf of their investor clients, serving as fiduciaries with a legal obligation to invest assets according to guidelines set by clients. Therefore, Mr. Cameron reasoned that “asset managers function as risk mitigators, not risk takers, because they actively manage risk.” He explained that the success or failure of an asset management firm does not impact investor assets. Simply put, he stated that “there is a legal separation between a firm’s assets and the assets of its customers.”
Furthermore, Mr. Cameron explained that AMG recently completed a survey of buy-side firms to help regulators gain insight into their risk profile. According to AMG, the results of the survey found that separate accounts do not pose a specific or unique threat to financial stability.
Lofchie Comment: The FSOC’s argument that asset management firms may be designated as systemically significant is not convincing. Cameron’s tutorial on the role asset managers play and the differences between asset managers and other financial institutions serves to raise questions as to (i) the FSOC’s competence, at least outside of the banking arena, and (ii) whether the FSOC is primarily motivated by political rather than economic considerations.
See: SIFMA Blog Post.
FSOC report: Asset Management and Financial Stability.
Related news: Representative Garrett Questions the SIFI Designation Authority Granted to FSOC by Dodd-Frank (May 6, 2014); SIFMA AMG Releases Survey on Separate Accounts’ Impact on Systemic Risk (April 14, 2014).